Housing Policy

California Politicians Craft Nifty New Idea To Increase Housing Costs

Lawmakers are proposing to create a "California Dream Fund" that would subsidize up to 45 percent of the costs of a new home.

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Home prices are surging across the country. Naturally, California politicians have an innovative new idea to drive them even higher.

On Tuesday, Democratic lawmakers in the state Assembly and Senate unveiled their joint legislative budget plan for 2021–22, which includes a plan to create a "California Dream For All" program that would subsidize nearly half of the cost of purchasing a new home, reports CalMatters.

"The first step to reaching the California dream of thriving in the middle class and building family wealth starts with homeownership. But taking that first step is even more challenging as the cost of California homes grows higher and higher," reads California Senate Democrats' April-released Build Back Boldly budget plan, which first outlined the idea. "The California Dream For All first time homebuyer program aims to address historical and economic barriers to homeownership with a new way for Californians to buy a first home and get a foothold in the middle class."

Under this program, the state would establish a "California Dream Fund" that would cover 45 percent of the costs of a home purchase for first-time buyers in exchange for a partial ownership stake in the home.

"Eligibility for the homebuyer will be based on income levels, eligibility of homes will be based on the home price," reads the Senate Democrats' outline of the plan. It adds that these income and home price limits would vary by region and be on a sliding scale to avoid any eligibility cliffs.

To start things off, a California Dream Fund could receive a one-time infusion of available state and federal funds (California is currently sitting on a massive budget surplus). Afterward, shares of the fund could be sold to private investors who could then earn tax-free returns on the appreciating value of the homes they've bought into.

Homeowners would be responsible for 100 percent of maintenance costs, property taxes, and insurance premiums for their property. They would also have the option of buying out investors' shares in their homes.

While seemingly well-intentioned, one can spot a couple of obvious problems with this scheme. The first is that home sellers would capture most of the value of these subsidies by simply raising prices.

The Democrats' program outline gives the example of a $400,000 home that, with the aid of the California Dream Fund, would only cost the individual purchaser $220,000, while the fund would cover the other $180,000.

In an alternative scenario, one could imagine a home seller raising his sale price to around $728,000. The cost to an individual buyer would still be $400,000, meaning the seller wouldn't price out any potential customers who could have afforded the original price. He would, however, stand to net an additional $328,000 courtesy of taxpayers and these envisioned private investors.

Should that happen, this new program would produce no improvement in housing affordability, and potentially make the problem worse for those who don't end up qualifying for subsidies. It would also be a massive gift to current homeowners who'd see the value of their own homes increase, exacerbating the racial wealth gaps the program is intended to eliminate.

This latter scenario is more likely for the same reason that homes are unattainable for so many Californians in the first place: restrictions on supply.

Restrictive zoning, lengthy permitting times and fees, urban growth boundaries, easy-to-abuse environmental review laws, and bureaucrats' discretionary ability to shoot down new housing all contribute to California's current housing shortage and sky-high home prices.

Subsidizing demand while leaving those barriers to new supply in place will inevitably produce more price increases. More money will be chasing the same number of homes.

The pandemic-era housing market illustrates this principle pretty well. The past year has seen a lot more people looking to buy homes, and fewer people interested in selling them. Median home prices have thus increased by over 10 percent in most metro areas, reports The Wall Street Journal.

Indeed, in order for the California Dream Fund to work as described in the Build Back Boldly outline, it'll have to make housing affordability worse: The program can't attract investors, and new homeowners can't build wealth through it, unless home prices continually rise.

CalMatters reports that lawmakers' legislative budget proposal is meant to start negotiations with Gov. Gavin Newsom, who released his own spending plan in May. A new budget will have to pass by June 15.

The plan, according to Senate Democrats' Build Back Boldly proposal, is for the budget to include instructions for the state's treasurer and the governor's administration to iron out the details of the California Dream For All program, which would go back to the legislature for approval.

Let's hope that gives lawmakers a little more time to think about their novel idea.

NEXT: Sweet Victories: Three States Make It Easier for Home Cooks To Be Entrepreneurs

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  1. Just don’t expect gas appliances like on the TV shows.

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  2. “Afterward, shares of the fund could be sold to private investors who could then earn tax-free returns on the appreciating value of the homes they’ve bought into.”

    Because home prices never go down. What could possibly go wrong?

    1. It’s like they have never heard of the South Sea Bubble. Push more demand because the only value is the overinflated price.

    2. That’s easy- Grifters and cronyism. I’m sure the DNC, Pelosi and Newsom family will be the “investors”, along with the pension fund managers of all the unions. I assume they are doing the Xi/China thing of a 99 year lease? If they do not it’s the rent control that Californians voted against, which is always inter generational.

    3. ROFL. What could possibly go wrong with the government further diddling with the housing market. Unanticipated consequences abound, it this case likely led by (1) a sudden jump in selling prices, followed by (2) a tsunami of California homeowners realizing they can sell their current houses to the next “owner” for beaucoup bucks and depart the state with a sackful, courtesy of – you guessed it – the remaining taxpayers.

      Politicians think of citizens as sheep, and this program should be called “Stumpbreaking the Taxpayer and Making Him Like It”. (I realize a lot of city folks don’t know what stumpbreaking refers to.)

    4. what about all the democrat run cities trying to do away with single family homes and put multi unit apartments and condos in single family zoned areas??

  3. Yeah, they needed a bailout.

  4. California taxes are based on purchase price. So driving up purchase price is a good thing.

    If I buy a house for $250,000, but the purchase price is 500,000, I’m paying a 250K mortgage, but twice the taxes every year. Likewise, it’ll drive up the price of all my neighbors’ houses, so as they all sell the new buyers will again be paying twice the taxes.

    Good investment by the state. You end up renting a house from them for $3500 a year in taxes instead of $1800 a year, they keep the partial equity stake so you don’t reap the whole return when you sell. And it won’t hurt old people and rich people who already own a house and are paying based on the purchase price in 1995 when the baby boomers all got their million dollar homes for $175K, so you don’t lose old people votes.

    It’s a winner all around. I mean, unless you are truly middle class and don’t own a home yet. Then you’re fucked. But nobody gives a shit about those people in this state. They can just leave for Texas or Idaho.

    1. They’ve already left for Texas and Idaho.

    2. New Jersey for all. I’d be pressed to think of the worst state in the country. NJ has cheap housing, your renting it from the state and go into negative territory if you buy (rent) young because property taxes. Socialist Shitholes. The truly incredible thing is that the author believes relieving some zoning laws in Labor union controlled states means banks will lend money to build “affordable- free market” housing, What is the productivity and costs of the labor? Meanwhile the rest of the US has the lowest cost housing in the world. Teachers, carpenters, electricians, pipe fitters unions gonna union with those property taxes.

      1. Meanwhile the rest of the US has the lowest cost housing in the world.

        What ‘world’ specifically are you referring to? Planet Earth or some other location?

          1. The headline is somewhat misleading. The charts in this article put the USA prices for houses and rents higher than about 2/3 of the world. But most of the countries below us are 3rd world hellholes…

            What the article does NOT discuss is why the USA costs are below most of the 1st world. I think the answer is, about 48 of the states don’t zone and otherwise regulate construction nearly as much as CA, but most of the 1st world does regulate that heavily or worse. And even CA prices must be held down somewhat by all the Americans that won’t take a job and move to CA, or quit their job and move away, after seeing the difference in the real estate markets.

    3. Goddamnit, they’ve already come here and driven up our prices.

  5. California; no body cares anymore, including Californians.

  6. Gonna be fun when Cali finally crashes and burns. I don’t care either an earthquake or financial.

    1. Indeed. I used to fear that a Dem administration, like we have now, couldn’t wait to bail out Demo governors. But California is putting such a rush on their brick wall rendezvous that I’m beginning to have hopes the crash will be far more calamitous than anyone could dream of. The bubble this project will create will put the South Seas and Tulip bubbles to shame, and put California in such a shit pile, that the rest of the nation will tell California that they made the bed, they can sleep in it by themselves.

    2. The Big Shake will trigger financial collapse.

    3. Or perhaps half the population will freeze to death in an unexpected but utterly predictable cold snap such as Texas had this year. It won’t be natural gas lines freezing up so much as all the places that only have electric heat. (CA now doesn’t allow using fossil fuel in new construction.) If you don’t have enough power to run the air conditioners in a heat wave, you are very far short of the power needed for heating – and CA is not only short of power every summer, but is working hard to reduce the reliable part of their power generation at the same time they are passing laws requiring more use of electricity.

  7. “program that would subsidize nearly half of the cost of purchasing a new home,”

    If the new homeowner sells the house who gets the money?

    Who is going to pay the rest of the cost of living in a new home? The various taxes like property and school, homeowners insurance, flood/fire insurance, utilities. Depending on location all the aforementioned costs can amortize out to $1200 minimum per month. Is that subsidized as well?

    1. RTFA.

    2. The devil is always in the details. One of the reasons why many blacks have a difficult time buying a home is not because of systemic racism, it’s because many are poor at financial planning and their credit scores suffer as a result. Coleman Hughes pointed this out in an article he wrote for Quillette, “Black American Culture and the Racial Wealth Gap”.

      “Consistent with the Nielsen data, they found that blacks with comparable incomes to whites spent 17 percent less on education, and 32 percent more (an extra $2300 per year in 2005 dollars) on ‘visible goods’—defined as cars, jewelry, and clothes.”

      “They developed a financial health scale, ranging from 0 to 5, that measured the degree to which families made “routine financial health choices that contribute to wealth accumulation”—e.g., saving any amount of money, paying credit card bills on time, having a low debt-to-income ratio, etc. At 3.12, Asian families scored the highest, followed by whites at 3.11, Hispanics at 2.71, and blacks at 2.63.”

      These pathologies are not restricted to just the black community. The US has a burgeoning hispanic underclass that has characteristics closer to blacks than whites/asians, particularly regarding educational achievement and illegitimacy, and lower class whites are adopting many of these pathologies as well. It’s clear that, to the left, rather than eliminating these pathologies, the rest of us are supposed to subsidize them.

      1. “Systemic racism” just means a particular race suffers disproportionately, ie what they used to call disparate impact. It is not a theory about the ultimate causes of the disparity. I remember in the Soho debate on racism in criminal justice Radley Balko said it wasn’t supposed to imply actual prejudice is involved. But by calling it “systemic racism” you plant the idea that the only possible cause is prejudice and therefore rule out other plausible theories like that it follows from disparate behavior.

      2. I’d say it’s more that to the left, the rest of society is supposed to *emulate* them.

  8. Correction:
    On Tuesday, Democratic lawmakers in the state Assembly and Senate unveiled their joint legislative budget plan for 2021–22, which includes a plan to create a “California Communist Dream For All” program…..

    Why complicate the big picture with details.

  9. My daughter just bought a condo locally – not California – Midwest by the Mississippi river. I wanted to invest with her in some real estate. The financing found $7500 first time home buyer money. Not sure where it came from but it made up an ~ 8% down payment – plus other money she had and our Government cash thrown in. Figured putting the 3 x $1400 into some real estate might hedge against inflation. Will soon be at 20% down so we won’t be paying mortgage insurance. Less than $700 per month to own this nice 2 bedroom cond.

  10. Hurray. A subsidy for homeowners thinking about leaving the state.

  11. Is there a state in the union where you can buy land and build multiple small houses on the cheap? Bare essentials, think 1-2 bedroom dwellings, en masse. Most communities are composed of 4bed/2.5bath dwellings which drive up the price of the house. Where is the market for people who prefer to live alone? I don’t need a mansion and I can’t afford one either.

    1. Texas if you get outside the incorporated cities. Most of the cities have strict zoning ordinances and aren’t interested in us builders providing actual affordable housing. They’d much rather we build a bunch of $300k McMansions.

      1. Just in case you didn’t know: A “300K” McMansion is a one-bedroom-house in CA. And not in a “good” area either.

        The two-bedroom, one-bath, 900 square feet, 80-year-old house, with no garage, in a mediocre neighborhood in CA, which I used to own many years ago, recently sold for $625,000.

        1. Meant to write: in CA cities — Bay Area in this case.

        2. I knew prices were ridiculous out there, but holy crap!

        3. i have a coworker casually browsing in the bay area. She sends me links for places that are complete dumps listed for $800k and she keeps hearing from their realtor those places end up selling for $1m+ . blows my mind.

    2. Mississippi is pretty cheap.

  12. This is a wonderful way to jack prices of homes so residents can capture the windfall and abscond the state with the cash to live in a rational new state and much lower price for a much better house. Caveat: please do not move here to Texas with your lefty ideas.

  13. I like how they give an example of a $400k home. Where? Barstow? Needles? There aren’t any homes for that anywhere people actually want to live.

  14. Anything the govt subsidizes, you get more of. This will go the way of college loans, prices will skyrocket.

  15. Golly. Politicians want to figure out a way to subsidize bank lending to create the demand for the debt issued as a result of subsidizing the ban lending. Whodathunk it.

  16. california is very expensive state i want to share this share market information in marathi information with all readers

  17. The government is doing so many terrible things to wreck havoc on the economy, I care barely keep count — much less find the time to denounce all of them. “This one benefits me so I might strategically forget to denounce this one” — so said everyone. Lolllololol.

  18. The size of the CA surplus is a disgrace. But with the highest taxes in the US, what did anyone expect. Meanwhile Newsom and friends will do all that they can to make CA inhospitable to major employers.
    As for the housing subsidy, I should not complain as it will boost the value of my home even further. But look at the not so fine print. CA would have an ownership stake and could control disposal of these homes if the owners wanted to move to a 2-party state.

  19. Just when you thought California politicians couldn’t possibly be any more stupid they come up with this. Good grief.

  20. What a tragedy it would be if more people lived in more expensive houses, because… um… then they’d have more wealth they didn’t earn, and the right way to arrive at that destination is to inherit.

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